Economic impact of sport stadiums, teams, events

From the X-Games to the Olympic Games, from bush league ballparks to state-of-the-art major-league stadiums, governments spend large amounts of public money to lure sporting events or host teams. This chapter begins an exploration of public policy decisions regarding investment in sport by laying a foundation that focuses on the economic impacts of stadiums, teams, and events. This focus provides an essential grounding for the evaluation of public investment decisions that are often framed in the context of economic development policy. Building on that foundation, chapter 5 considers other reasons that officials and residents might support public investment in sport, and illustrates how such decisions are swayed by a mix of economic circumstances, political influence, and private power.

The contents of the current chapter will

examine the role that professional sports play in a local economy;

explain the process used to project the economic impacts of sport stadiums, teams, and events, and describe the main sources of error (or abuse) that lead to exaggerated projections of economic impacts; and

review some empirical studies that cast doubt on the ability of stadiums, teams, and sporting events to serve as economic catalysts.

Public Cost of Big-Time Sports

The expenditure of public money on sport facilities and events is an international phenomenon that occurs at every level of government. The government of Portugal spent $732 million to host Euro 2004, the European soccer championship tournament (Smale, 2004, June 2). Public money paid for the construction of seven new stadiums in a country about the size of the state of Indiana. Portugal’s spending paled in comparison with the cost associated with the 2002 World Cup, cohosted by South Korea and Japan. To prepare for the event, various Japanese localities built 7 new stadiums and renovated 3 others at a cost of $4.5 billion. South Korea spent $2 billion on 10 new facilities (Struck, 2002).

Olympic spending dwarfs even these figures. The Greek government spent $12.8 billion to hold the 2004 Summer Olympics in Athens, and the Chinese government invested over $43 billion for the Beijing Games in 2008 (Gross, 2008). This type of spending is often speculative in nature; cities take on construction projects long before they are awarded host status. Public spending on the 2002 Salt Lake City Games began in 1990 when a portion of state and local sales tax revenue was diverted to fund construction of bobsled, luge, speed skating, and ski jump facilities. Salt Lake City was not awarded the 2002 Games until 1995 (Burbank et al., 2001). The Los Angeles Coliseum (built in 1923), Chicago’s Soldier Field (1924), and Cleveland’s Municipal Stadium (1931) were all built with public money in failed bids to host the Olympic Games. (Los Angeles did successfully attract the 1932 Games.) These facilities all eventually played host to professional baseball or football teams.

Recent spending on stadiums for top-level professional teams has generated a great deal of attention. Between 2000 and 2009, 31 major-league stadiums and arenas opened across urban America at a public cost of approximately $8 billion. A few were built to attract new teams, but most replaced existing facilities for incumbent teams. Cincinnati’s Cynergy Field (formerly called Riverfront Stadium), former home of the NFL Bengals and MLB Reds, was replaced by two new stadiums built with over $600 million in subsidies from Hamilton County. Multiple facilities were also built to replace Three Rivers Stadium in Pittsburgh and Veterans Stadium in Philadelphia. The average cost of a football or baseball stadium built since 2000 is $528 million. The average cost of a basketball or hockey arena built during this period is $276 million. Public money has typically covered about two-thirds of these costs. (Chapter 5 provides a detailed assessment of recent stadium construction trends.)

Economic Magnitude of Sport in Perspective

The significant investment by local governments suggests that the economic returns of sport must be quite large. Indeed economic benefits are often proffered as the justification for sport subsidies. Teams, stadiums, and events are commonly promoted as economic catalysts. For example, in 1997 a group campaigning for a new publicly funded football stadium for the San Francisco 49ers used the slogan “Build the Stadium—Create the Jobs!” (Epstein, 1997). The Oregon Stadium Campaign, a group working to bring major-league baseball to Portland, ran an ad in the local newspaper that read, “$150 million company seeks move to Oregon. Will bring jobs, development, snappy new uniforms.”

If you have read the previous chapters of this book, we hope that you are now convinced that talking about sport as big business is legitimate. Sport leagues cater to ever-expanding global markets. Wealthy individuals and powerful conglomerates buy and sell teams for hundreds of millions of dollars. Unions struggle with owners for their share of revenue, and salaries climb increasingly higher, in part because of escalating television contracts. Big business indeed, but how big is big? By many indicators, sport teams as individual firms play only minor roles within complex urban economies.

Many professional sport teams have annual revenues that exceed $100 million. Average annual revenues are approximately $155 million in the NFL, $130 million in MLB, $95 million in the NBA, and $70 million in the NHL (Zimbalist, 2003). These numbers may seem large, but some comparisons can provide perspective. If you are enrolled in a state university, chances are that your school takes in more revenue and spends more than the closest professional sport team. For example, Portland State University has a budget of nearly $200 million, more than twice that of the Portland Trailblazers. For another comparison, consider this: In 2003 the average Costco wholesale store had annual sales of $113 million, exceeding the revenues of most sport teams (Heylar, 2003). Few would expect a big-box warehouse store to be a major player in an urban economy, yet they are typically bigger businesses than sport teams. Of course, the local warehouse store does not have devoted fans who wear Costco hats, paint their faces in Costco blue and red, and follow the successes and failures of the store on the nightly news. We will discuss those benefits (consumption benefits) in the next chapter, but for now let us focus on the role of sport teams in the local economy.

Another way to put the economic magnitude of sport teams in perspective is by examining the share of total payroll and employment that they represent within their local economies. We can use Portland as a case study to explore the current significance of the Trailblazers and the potential significance of adding a professional baseball team.

Table 4.1 shows total private-sector employment and payroll for Multnomah County and Portland’s six-county primary metropolitan statistical area in 2001. The table also shows employment and payroll figures for the spectator sport industry, as defined by the North American Industry Classification System (NAICS). This industry category (NAICS 71121) includes all professional and semiprofessional sport teams; athletes involved in individual professional sports; and businesses associated with automobile, horse, and dog racing. For the Portland metropolitan area, the Trailblazers make up the bulk of this category, but it also includes payroll and employment related to a minor-league baseball team, Portland International Raceway, Portland Meadows horse-racing track, Multnomah Greyhound Park, and other small spectator sport ventures. Still, the industry accounts for less than 1 percent of Multnomah County’s private sector payroll and only 0.2 percent of the county’s jobs. At the metropolitan area level, the contributions of spectator sports are even more diminutive.

Using this approach, we can examine how things would look if the Oregon Stadium Campaign were successful in adding a major-league baseball team to Portland’s sport landscape. Remember the newspaper ad “$150 million company seeks move to Oregon. Will bring jobs, development, snappy new uniforms”? For starters, the $150 million figure seems too high. According to figures furnished by Major League Baseball in 2001, average team revenue was $118 million. Forbes estimates average team revenues for 2003 to be about $130 million. Although a few teams have revenues that exceed $150 million, a team willing to relocate to Portland would likely be on the low end of the revenue spectrum (at or below $100 million).

Let us make the generous assumption that a Portland baseball team would have a payroll of about $80 million, near the league average. Again, the teams most likely to move are low-payroll franchises. For example, in 2004 the Oregon Stadium Campaign worked diligently to lure the Montreal Expos, whose payroll at the time was $44 million. The opening day 2009 payroll of the Florida Marlins was approximately $36 million. As shown in table 4.2, a firm with an $80 million payroll would account for about 0.5 percent of Multnomah County’s payroll and 0.25 percent of the metropolitan area payroll. Table 4.2 also revises table 4.1 by adding this $80 million to the overall payroll figure for the spectator sport industry. Even with the addition of a baseball team, the spectator sport industry would account for just slightly more than 1 percent of the county’s total private sector payroll and less than 1 percent at the metropolitan area level. (For the record, we do not doubt the part about the snappy new uniforms!)